In the past few years, CBD has skyrocketed into a multi-billion dollar industry, and it shows no signs of slowing down. But starting a CBD business isn’t a “get rich quick” project –– it’s complex, and there are three big hurdles sellers have to overcome before they can start making money.
High-risk online sales
One of the single largest challenges in starting a CBD business is the lack of support from banks and conventional online merchants like PayPal and Stripe. The majority of new CBD sellers set up shop online, but all of the major credit card processors consider the CBD industry too high-risk (because of legal implications) and refuse to work with CBD businesses. No credit card processor equals no online sales –– and zero profit.
If you set up an online store using a standard-risk merchant (like Paypal), you might experience a sudden loss of e-commerce services, and wake up to an email that reads “Account terminated”. This sort of CBD business catastrophe actually happened this week, when payment processor Fortress Payment Technologies gave their CBD e-commerce clients less than 8 hours notice that they were shutting down their accounts, leaving them with no way to accept, process or refund payments.
Without backing from big banks and credit card processors, starting a CBD business is an uphill climb. However, it’s far from hopeless. Check out our CBD business plan here.
The CBD market might be overheating
The “green rush” has seen CBD rapidly become a multi-billion dollar industry, and by 2022, it’s expected to rise to $22 billion. This seems like great news for both CBD sellers and consumers, but it could also make starting a CBD business even more difficult.
Rick Martinez, the CEO of a major cannabis company, says of the issue:
“The barrier to entry is so low that literally anybody and their uncle can jump into the business. One can almost, I’m kidding you not, can start an e-commerce site and start selling CBD almost overnight. So, it’s super simple to get in and that’s a good thing and it’s a very dangerous thing as well.”
Like any business, CBD is driven by the law of supply and demand. The supply continues to grow astronomically, leading to CBD prices already dropping around the country. However, there’s no saying that demand will always be able to keep up. If you’re starting a CBD business, you need to make sure that your brand stands out as trustworthy, high-quality and professional, or you'll easily get lost in the hundreds of online CBD shops that pop up every month.
Complicated legal landscape
CBD entrepreneurs have to avoid a lot of legal landmines to become successful. As of 2016, the U.S. Drug Enforcement Administration still classified CBD as a controlled substance (the same as marijuana). However, the ban doesn’t apply to CBD extracted from legal hemp. This “mixed message” policy has led to a lot of confusion, as hemp extract is now federally legal, but states still have the right to treat it as an illegal substance and prosecute sellers and users.
“The main takeaway is compliance: You’ve got to follow all the rules and do everything right,” said Shawn Hauser, a Denver attorney who specializes in hemp law.
There are definitely challenges when starting a CBD business, but you can still be successful. A big part of success is working with the right partners, and that’s where Gram comes in. Contact us and find out how we can help you grow your brand, build a customer base and start making money with CBD.